Amendment in section 43B of Income Tax act 1961 related topayment to a micro or small enterprise

43B Certain deductions to be allowed only on actual payment.

Following clause (h) shall be inserted after clause (g) of section 43B by the Finance Act, 2023.

Any sum payable by the assessee to a micro or small enterprise beyond the time limitspecified in section 15 of the Micro, Small and Medium Enterprises Development Act,2006 (27 of 2006),shall be allowed (irrespective of the previous year in which theliability to pay such sum was incurred by the assessee according to the method ofaccounting regularly employed by him) only in computing the income referred toin section 28 of that previous year in which such sum is actually paid by him:

What is time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006:

  • Section 15 of MSMED Act, 2006 provides the time frame upto when payment shall be made by the Buyer to Micro or Small Enterprise supplier. Where any supplier, supplies any goods orrenders any services to any buyer, the buyer shall make payment on or before the date agreedupon between him and the supplier in writing or, where there is no agreementthis behalf, before the appointed day
  • Provided that in no case the period agreed upon between the supplier and the buyer in writingshall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Details Related to Agreement between Buyer & seller

  • If agreement stipulated 20 days than payment is to be made within 20 days of invoice.
  • If agreement stipulated 60 days than payment is to be made within 45 days of invoice.
  • If no agreement than within 15 days of invoice.

Read more at: Amendment in IT rules regarding Form 3CA-3CB-3CD

What is Micro or small enterprise:

Conclusion:

  • If Any payment is outstanding to Creditors (Micro or Small Enterprise) as on 31.03.2024, Whichis due more than 45 days than that amount payable to creditors (Micro or Small Enterprise )added to profit. So Income tax Payment required to pay on that amount also.
  • Purchase and Expenses incurred on or after 01″ February every year is to be checked if relatesmicro or small then payment hasbe made within time as per MSMED Act, 2006. (it isassumed that purchase and expenses incurred before 01″ February, shall be anyhow paid upto31st March.) Otherwise purchase/expense shall be disallowed and shall be allowed in the yearof actual payment.

Example:

As on 31.03.2024

  • Amount payable to Creditors (Micro & Small Enterprise) due more than 45 days Rs 10,00,000.
  • Net profit for the A.Y 2024-25 (F.Y. 2023-2024) 5,00,000

Following is the Calculation of Tax

Read more at: Interest on delay payment to MSME’s – Implications

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